Asset prices, exchange rates and the current account

Marcel Fratzscher, Luciana Juvenal and Lucio Sarno

European Economic Review, 2010, vol. 54, issue 5, 643-658

Abstract: This paper analyses the role of asset prices in comparison to other factors, in particular exchange rates, as a driver of the US trade balance. It employs a Bayesian structural VAR model that requires imposing only a minimum of economically meaningful sign restrictions. We find that equity market shocks and housing price shocks have been major determinants of the US current account in the past, accounting for up to 30% of the movements of the US trade balance at a horizon of 20 quarters. By contrast, shocks to the real exchange rate have been less relevant, explaining about 9% and exerting a more temporary effect on the US trade balance. Our findings suggest that large exchange rate movements may not necessarily be the key element of an adjustment of today's large current account imbalances, and that in particular relative global asset price changes could be a potent source of adjustment.

Keywords: Current; account; Global; imbalances; Exchange; rates; Bayesian; VAR (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (84)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014-2921(09)00126-3
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Asset Prices, Exchange Rates and the Current Account (2009)
Working Paper: Asset prices, exchange rates and the current account (2008)
Working Paper: Asset prices, exchange rates and the current account (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:54:y:2010:i:5:p:643-658

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().